Jo Grimwood: Hello and welcome to Property Question Time. I’m Jo Grimwood. Now, this is the show where you truly are in the driving seat, and you get to send your questions in to our panel of property experts, whatever they may be. I’m joined today in the studio by Evan Maindonald, and Evan is the founder and CEO and Melt Homes. Welcome to you, Evan. I also have Simon Zutshi. Simon is the founder of Property Investment Network, PIN, and also an author. Welcome to you, Simon. We also have joining us remotely Paul Mahoney, who has offices in both London and Australia, and he is the MD of Nova Financial. Welcome, gentlemen.
We have some great questions that our viewers have sent in. Simon, I’m actually going to start with you. This is your question. I am an owner-occupier of a four-bedroom house and have lived here for 30 years. I’m thinking of renting a couple of bedrooms out, as I’m studying and my income has considerably reduced. If I rent out two of the spare bedrooms, does that mean that the property will become an HMO? If so, how different is that from just having one lodger?
Simon Zutshi: Okay, there are a couple of considerations here. You can take lodgers into your home, and actually there’s a scheme called rent-a-room scheme, so you can actually earn currently £7,500 completely tax free. So actually, it’s a really good thing the government do to encourage people to open up homes. However, an HMO, house of multiple occupation, is three or more unrelated people living in a property, so if this person takes in two lodgers, technically that is an HMO. What that means is, the house would have to conform to all the safety requirements, things like you need an interlink smoke alarm, you need fire doors, locks on the doors, etc. So that would be some quite major changes to this owner’s home.
So I think the best thing to do would be to contact the local council, to the HMO license department, and get their view on it. Some councils have a view, well actually, if it’s your own home, you live there, that’s a little bit different from a business that is an HMO. My feeling is, technically it should really be registered, but it will depend on the local council view.
Jo Grimwood: Prior to my parents passing away, I helped them to purchase a bungalow some 10 years ago. I put up one-third of the sale price and am registered as one of the owners. Now, since my parents passed away, they left a further one-third of the property to me and the remaining one-third to my estranged brother, so I now own two-thirds and my brother owns one-third. I’ve asked if my brother would like to buy my share, but he didn’t want to do that, nor is he willing to let me buy his share of the property. Neither of us live in the bungalow, so it’s empty. I’m at a loss what to do here. Is there any way I can force a sale?
Evan Maindonald: Okay, the answer to the question is, yes there is. The legal term for the form of ownership that you and your brother have is something called tenants in common, and when you have that form of ownership, there’ll be a specific wording on the title deeds. I can’t remember the precise wording, but it starts with “no disposition of the registered estate” and ends with “unless authorized by an order of the court”. The bit in the middle, you’ll recognize. If you’re in any doubt, just ask a solicitor. But if you have that tenancy in common arrangement as the ownership arrangement, and that is noted on the title deeds, which I think you’ve said it is, then you can apply to the court for an order for the property to be sold.
I would say, though, that applying to the court for such an order really should be your last resort. What you would really be better doing is trying to work something out with your brother. If you can’t, and you really must sell the property, then go ahead and apply to the court, but just bear in mind that it may not help the relationship between your brother and you if you do that and that there will be costs involved in doing so.
Jo Grimwood: Absolutely. Simon, anything to add?
Simon Zutshi: I think it’s a pretty good answer, but I guess, sometimes if people have been estranged for whatever reason, maybe someone could try to get some sort of independent arbitration, maybe a family friend who knows both people, who could be completely independent. I think it’s about getting down and sitting down and talking to the brother and finding out, what does the brother really want? They may not like the idea of selling the former family home. You don’t know, so it’s about really trying to sit down and facilitate that conversation to come up with a win-win. I completely agree, going to court should be the last thing, because it probably would really not help the relationship any further.
Evan Maindonald: But there’s no benefit in anyone to having the property empty either, so …
Simon Zutshi: No, exactly, because there’s going to be a cost to having an empty property. You’ve got to pay the council tax, you want to kind of heat the place so it doesn’t go cold and damp. There are real commitments there, so that does need to be resolved.
Evan Maindonald: So you’d think there must be an emotional reason rather than a logical reason, perhaps, why the brother doesn’t sell. And maybe a third party can get around that more easily than you can by confronting him.
Jo Grimwood: Yeah, try and get some communication going, first port of call. Okay, wonderful. On to Paul. Now Paul, I’m looking for advice before I take the next step. I’ve been renting out my home for a few years and now need to change to a buy-to-let. Is this an easy process? With my current lender, could I do it, for example, or should I go and remortgage with a different lender and change to a buy-to-let at the same time if that’s possible? Not quite sure how my current lender would feel if I walked in and told them that I’ve been a bit stupid but now want to correct my wrongdoings. Any advice greatly appreciated here.
Paul Mahoney: Okay. Look, a fairly common situation, really, that people let out what was their previous home for whatever reason. The best course of action you really should have taken initially was to get what’s called a consent to let from your lender to enable you to rent that property out. It’s not really the end of the world that you’ve been doing it, and I’d be very surprised if your lender were to take any severe actions against you, especially if you were the one telling them that that’s what you were doing. But one way to avoid that worry altogether would be to seek out the advice of an advisor, an independent financial advisor, a mortgage advisor who can look at your situation, the property, your current financial position, the fact that it’s now being let out, and you can quite simply remortgage that residential mortgage to a buy-to-let mortgage.
That’s most suitable for you in your situation. That should be a fairly straightforward situation and is a fairly common situation. I think for most of us, when we have changes in our personal situation and we need to move for whatever reason, the last thing on our mind is to call up the bank and tell them that you’re no longer living there or that you need to get in a tenant. It’s not that uncommon. I’d be surprised if the bank was even surprised that you’d gone a period of time without them knowing, but if you want to avoid the risk of them jumping up and down altogether, then as I say, you could just go with a completely separate lender. So It’s not a complex situation.
It’s definitely worth getting advice on doing it, because by all means, you could go down to … let’s say your current mortgage is with Lloyds. You go down to the other high street lender down the street. They might have the best product for you, but they also might not, and there’s a very broad range of lenders out there. So for you to go and try to seek out the best product for you on your own, individually with, I assume, limited knowledge of the market, it would be a lot more difficult, time consuming, and you’d be far less likely to get the right product for you than if you were to just go and seek out the advice of somebody who was very familiar with the market. So that would be my guidance on what you should do with your current situation.
Jo Grimwood: Okay, thank you so much, Paul. Simon, do you have a golden nugget for us, by any chance?
Simon Zutshi: I do, yeah. Very often, people might inherit a property, and it might be a property located somewhere in the country, and people think oh, we’re just going to sell the property automatically to get the money. But there’s such a poor rate of return in the bank these days. I guess if they need the money, fair enough, but often people don’t. It’s money they’ve never had. They put it in the bank and get a terrible return. It might be worth looking at, is it possible to remortgage the property to take some money out, so they still get some cash if they need some, but they hold on to the property and get a local letting agent to look after it.
Now, typically, inherited properties need a little bit of work doing to them, some modernization, but you can pay for that for the money that comes from the remortgage and still have some money left over. And given that property, over the long term prices go up, holding on to that property and renting it out might be much better than doing something else with it after people pay down their own mortgage. But as a property investor, I’m sure you’d agree that expanding your portfolio with an inherited property is a pretty easy way to do it, as long as it stacks up and gives a good rental return.
Evan Maindonald: Well actually, with my property investor’s hat on, absolutely agree, but also with the property developer’s hat on, if a property’s been in the family for a long time, it could be that there’s some potential for development that maybe hasn’t been explored because it’s not something that you would think of with a family home. It may well be that looking at the development angle is something that’s worth doing. Perhaps the property could be extended. Maybe there’s some land on which another house could be built. If you don’t look at that, if you don’t consider that, you’re going to potentially be missing out on some value that could be in the property that you could take advantage of.
Jo Grimwood: Okay, gentlemen. We’re going to take a break, and when we return, more questions from our panel of property experts. Hello, and welcome back to Property Question time. I’m joined today in the studio by Simon Zutshi and Evan Maindonald. Welcome to you gentlemen. Also joining us remotely, we have Paul Mahoney, who has offices in London and Australia.
Okay, I’m going to get straight on to a question for you, Simon. We’re thinking of selling, but just wondered what to do when we need to make our potential buyers aware of? For example, our oven and hobs can be temperamental. Both work, but the top oven ignition sometimes clicks when the bottom oven is on, and the hobs don’t always light on the first go. Also, the bath hot tap has to be on halfway to get super hot water, so it only gives warm water. Basically, a lot of things around the house are a bit temperamental, I think. Do we need to disclose this, though, when we’re selling?
Simon Zutshi: Okay. When you sell a property, you’ll have a document to fill in that you send to your solicitor, and they send to the other side, declaring any kind of issue, but it’s more like things like boundary disputes and what fixture and fittings are being included in the purchase. If you’re taking the cookers and things with you, there’s not a problem, because it’s not going to affect the new people. If you are leaving things, you might want to say that. But actually, I’d take a slightly different approach. I would get an electrician to come in, and a plumber, and just fix all those things, because that’s the best thing. And actually, if someone was to discover all these little things that were wrong, and they think, well all these things need fixing, it might affect the price they’re prepared to offer you, because of all the inconvenience of getting the things fixed.
So I think you need to get your house ready to sell in the first place. Do all the jobs. Any little DIY jobs that have been half done, get those finished off. Give it a fresh coat of paint. Get out all the clutter. Make it look presentable. Dress the property when people come round, and you’re going to get the best price, and you’re going to have happy buyers as well.
Jo Grimwood: Brilliant. Just snowballing onto that, do you think a full renovation is necessary on older houses?
Simon Zutshi: No, not at all, just a cosmetic improvement. I mean, make sure everything works, things like your gas boiler. It’s great to have an annual maintenance on those anyway, so there shouldn’t be any issues there. Look after the property, just make it look cosmetically good. Tidy up the garden, make sure there’s no rubbish outside. You want to have curb appeal. If someone arrives, they think oh, that looks nice, and then they come in, and if it looks nice, it smells nice, and that’s going to put them in a much better mood and get them to want to buy the property, and thus want to pay a much better price to you. So it’s really worth just doing a few little jobs.
Jo Grimwood: Okay. Evan?
Evan Maindonald: I would follow that on just by saying you’re looking at it as a problem. I think you want to take the problem and turn it into an opportunity. It’s an opportunity to make the house look better, and I think in terms of the improvements that you do, you want to follow the 80/20 rule. You want to do the 20% of stuff that makes 80% of the difference in terms of look. If you do 100%, it’s going to cost you a lot of money, but you can do some smaller things or some less expensive things that will make a big difference. Redecorate, maybe replace that tap that’s a problem with something that’s more modern-looking, so not only do you fix the problem, but you improve the look of the place. As Simon said, get it looking spic and span, get it looking in the sort of condition that you would want to be looking at a house in when you go and buy something. That’s what will get you the best price.
Jo Grimwood: Brilliant, yeah. Absolutely, and if you’re paying a lot of money for a house, you don’t want to pay a fortune out on renovations when you’re buying that house, especially younger couples and things.
Simon Zutshi: Unless you’re deliberately buying it at a low price with the intention of renovating, adding value. But if it’s a home, for most people if it’s all done for them, they love that.
Jo Grimwood: Yeah. Yeah.
Evan Maindonald: And it’s all about how people perceive it. If they see something and it doesn’t work properly or something’s falling apart, that’ll put people off, and you won’t get the best price.
Simon Zutshi: That’s right.
Jo Grimwood: Absolutely. Okay, great advice, gentlemen. We have a question for you, Evan. I’m thinking about investing some cash that I have into property renovation on a small scale only. I’m talking about having enough cash to put down a 25% deposit and enough left over to fund the renovation. Can I get some advice on the best way to finance the rest of the property purchase? Is there a special type of mortgage for these kinds of projects, where the process from start to finish would likely be less than six months?
Evan Maindonald: Okay, the answer is yes there is. It’s called a refurbishment mortgage. Many buy-to-let lenders do refurbishment mortgages. One that’s quite a mainstream lender that does it is Shawbrook. They’re well-known for doing those sorts of mortgages. They’re generally split into light refurbishment and heavy refurbishment mortgages, and light or heavy just depends on the scope of works that you’re doing. If you’re doing more structural works and things like that, you probably want a heavy refurbishment mortgage. If you’re just doing an internal kind of tart up and redecoration and smarten up, that’s probably light refurbishment.
The way it works is that normally the lender will advance a percentage of the value of the property when you buy it. Normally it would be, say, 75%. Then once you’ve completed the works, or a proportion of the works, then the lender will come in, they’ll get their surveyor to come in and have a look. They’ll value the works that have been done, and then they will advance you some money for those works. When the works have been finished, they’ll revalue the property, and normally they’ll advance you 75% of the revised value of the property. So if the works add value to the property, you can end up getting the whole cost of the works covered, actually, with the refurbishment mortgage. Usually, lenders who advance these mortgages will convert it to a buy-to-let mortgage at the end, or if you prefer, when you’re finished you can either sell it or refinance it. But it’s a refurbishment mortgage that you need.
Jo Grimwood: Brilliant. Okay, great advice. Thank you. On to a question for Paul. Paul, I currently let out a flat as I live with my parents. As I’m in my mid-30s, I feel it’s probably time I had my own place, but I’m in two minds how to go about it. My dad thinks I should keep the buy-to-let and possibly buy another with the equity, as I have about 50% paid off now, and let these properties pay for themselves until I retire and live off the income. Now, my mum’s advice is own my own place and don’t rent. On the other hand, some people have said sell it and just put my equity into a place to live myself. Any views on this?
Paul Mahoney: Again, a fairly common situation. Conventional wisdom, which isn’t always the best wisdom, would tell you that it’s good to buy your own home. Go out, leverage yourself up to your eyeballs, buy the most expensive house you can afford, and spend your whole life trying to pay it off. And then when you finally do and you get to retirement, you’ve got a debt-free home but nothing else. I hope you can sort of see that I don’t necessarily think along those lines. It depends on your situation and the properties that you currently own and the properties that you would potentially buy, but there’s definitely a strong trend toward something that’s been termed rent vesting, especially in somewhere like London, where it’s very expensive to buy anywhere that you would be comfortable living, especially as a young person, which it seems that you are.
So what a lot of people are doing, is they’re renting in areas where they feel comfortable, where they’re happy, which gives them the facilities and amenities they want and need and is close to work, because renting’s a bit cheaper. And they’re investing in areas where it makes sense to invest, where they can get a better yield, where growth in being achieved. So they’re still utilizing their money, but they’re living in areas where they’re comfortable. So you’re kind of ticking two boxes or killing two birds with one stone. That can work quite well in the right circumstances, so long as you’re making the right investments for you, your stage of life and the goals that you’re working toward. And you’re ticking that lifestyle box as well.
I’m not saying that buying a home is a bad idea, because it can be a good idea, so long as you’re doing other things as well, because buying a home, although a lot of people would think of it as an investment, it isn’t really. It’s a lifestyle asset. It gives you somewhere to live, it improves your personal lifestyle and gives you more comfort or security, but it’s not an investment. It doesn’t provide you with an income. You referred to providing for a pension at some point in the future. Although that might be a while down the line, it’s worth thinking about it now and working toward it. So that’s quite a sensible thing to be considering.
Whether your mum or your dad is right, that’s probably a matter of opinion from each of them, and perhaps your mum is more toward the conventional side of things, and your dad’s thinking more down the sort of financial goals line. It all very much depends on your situation, because the information you’ve given is quite general in nature. What I’d recommend that you do is seek out advice, where you can get a more clear picture of your situation, your goals and your preferences, what your options are, and therefore put in place a strategy for working toward those goals, both from a lifestyle and a financial perspective. So both could be suitable for you, but a couple of things there for you to consider, so far as investing your money and getting your money working for you and spending your money on lifestyle assets like, for example, a home.
Jo Grimwood: Okay, thank you very much, Paul. Now, that’s almost all we have time for, gentlemen. Do you happen to have a last golden nugget for us, a sage piece of advice, Evan?
Evan Maindonald: Yeah, just something to think about. If you’re buying investment property and you’re renting it out, it’s worth thinking about the sort of tenant that you want to be renting to. Property that’s more expensive, more luxurious property, if you’re renting to tenants who are able and willing to pay more, they will generally require less management and give you less trouble than tenants who are what you might call low-end tenants. So if you’re buying an HMO and you’re renting out the individual rooms, that’s going to require a lot more management than an upmarket flat that’s being rented to a professional.
And so you’ve got a scale there: more management required, less management required. Generally, at the upper end you tend to get lower rental yields, but you’ve got less hassle in managing the property. At the lower end, where you’ve got tenants that are paying less, there tends to be a lot more work involved in managing the tenant. They tend to give you more trouble. So when you’re thinking about buying investment property, that’s something worth bearing in mind.
The other thing that’s worth putting into that equation is commercial property. Generally, commercial tenants, even small commercial tenants, don’t require a lot of management. They tend to be a lot more self-contained than residential tenants. So if you’re looking for hassle-free tenants with a good return, commercial property can be something to look at.
Jo Grimwood: Simon, do you have anything to add to that?
Simon Zutshi: Agree, particularly talking about HMOs and things. Sometimes, the lower the rent … and it’s amazing. People who haven’t paid as much rent seem far more demanding and expect far more, whereas if someone’s paying a good amount, they’re usually, not always but usually, better tenants. One tip that we’ve shared with some of my clients is that actually, if you’re in a market where there’s a bit of oversupply, of an HMO, for example, just lowering the rent is not the best thing, because you might attract the tenants who are not so good.
Actually improving the property and raising the rents, which you might think is counterintuitive, but actually there’s less people at that higher level, but there are people still prepared to pay for good quality accommodation. So actually investing in a property to make sure it’s really good, if you could rent something slightly above the average standard but for slightly lower, you should always be able to fill it.
Evan Maindonald: Definitely. People who can afford to pay more tend to be better tenants. I think that’s the lesson. We have a property that we holiday let, and we get about £3,500 a week for holiday letting it. The people who ask for a discount on the letting of that property are always the most difficult ones. The people who pay full price never give us any trouble. It’s the people who ask for discounts that always seem to be the ones that want something for nothing and are most difficult with us. So I think if you’re thinking about which tenants are going to give you the least trouble, it’s probably the ones that are prepared to pay the most.
Jo Grimwood: Well, that’s all we’ve got time for today here at Property Question Time. A big thank you to our guests, Simon Zutshi, Evan Maindonald, and Paul Mahoney. Now, if you’d like to send a question in to our panel of property experts to be featured on the show, you can do so by registering your question on our website or emailing firstname.lastname@example.org. We look forward to seeing you next time here at Property Question Time. Bye for now.